The analysis first notes: "In the United States, the healthcare industry is familiar with the Sunshine Act's tracking and reporting requirements related to payments and transfers of value to physicians, as well as to physician ownership and investment interests." (Although other research suggests the industry is not as familiar as you may think.)

However: "As implemented earlier this year, however, the Sunshine Act also broadly applies to foreign drug and device manufacturers that operate in the United States (under certain conditions). Because selling any product in the United States is viewed as 'operating' in the United States, many foreign companies will need to prepare to collect and report data about their interactions with US physicians anywhere in the world. Reporting duties are especially likely for global manufacturers with headquarters or branches in the US. All 'applicable manufacturers' must begin collecting the required data on August 1, 2013, and must report this data by March 31, 2014."

When is a foreign entity an "applicable manufacturer"?

"The Sunshine Act applies to foreign entities that meet certain conditions, although the implementing agency (the Centers for Medicare & Medicaid Services, or CMS) has clarified that it does not intend to capture foreign entities with no business presence in the United States. See 78 Fed. Reg. 9461 (Feb. 8, 2013). "

"CMS has limited the definition of 'applicable manufacturer' to only those entities actually 'operating' in the United States: meaning that they have a physical location in the United States, or otherwise conduct activities within the United States directly or through a legally authorized agent, 'including by selling a product[.]' Under these circumstances, CMS has stated that 'entities based outside the United States that do have operations in the United States are subject to the reporting requirements.'"

Manufacturer reporting duties

According to the analysis, a manufacturer has a duty to report, if:

"1. Operates in the United States (meaning that it has a physical location within the US or otherwise conducts activities in the US, as discussed above); and either

3. Operates under common ownership with an applicable manufacturer and provides assistance or support to the applicable manufacturer in the manufacturing, marketing, promotion, sale, or distribution of a covered drug, device, biological, or medical supply."

Common ownership and providing assistance or support

"First, CMS has set the ownership threshold for 'common ownership' at 5% direct or indirect ownership interests in an entity. See 42 CFR § 403.902. This means that entities that are connected by ownership through direct or indirect ownership interests summing to 5% or more will be considered commonly owned.'

Second, 'assistance and support' is broadly defined as 'providing a service or services that are necessary or integral to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological or medical supply.' See 42 CFR § 403.902. CMS provided two examples on opposite ends of the spectrum: it contrasted an entity under common ownership that produces the active ingredient for a covered drug that is necessary to the manufacturing of the applicable manufacturer's product with an entity under common ownership that only aids the applicable manufacturer with human resources administrative functions. See 78 Fed. Reg. 9463. CMS stated that it would view the manufacturer of the active ingredient as providing assistance and support (since the applicable manufacturer could not produce the drug without the active ingredient), but not the entity providing human resources / administrative functions. Note that the definition of "assistance and support" includes both 'necessary and integral' services. CMS's examples did not address the meaning of 'integral,' nor have we seen guidance elsewhere from CMS on its meaning. For example, it is an open question whether research and development projects would be viewed as 'integral' to the production or preparation of drugs or devices.

If non-US entities qualify as 'applicable manufacturers,' they will need to ensure that they adequately detect and track reportable interactions with US physicians and teaching hospitals, especially for US physicians who now practice exclusively abroad. More information about the Sunshine Act's tracking and reporting requirements is available here."

US physicians practicing abroad may be "covered recipients"

"Physicians who now practice exclusively abroad – but maintain US licenses – will likely be considered 'covered recipients' for reporting under the Sunshine Act. That is, CMS has noted that its definition of physician hinges on being 'legally authorized' to practice, so that all physicians that have a current license to practice would be considered covered recipients. Whether or not a physician still practices in the US appears to be irrelevant, because CMS has stated that '[b]y holding a current license to practice, the physician is legally authorized to practice regardless of the extent to which they do so.' 78 Fed. Reg. 9467(emphasis added). We believe that CMS would require manufacturers to make appropriate inquiries to determine whether physicians hold current licenses to practice in the US."

Even entities with no reporting duties may be involved in "indirect payments"

"Further, even if an entity has no reporting duties, it may be asked to provide data on indirect payments, such as to a commonly owned applicable manufacturer. CMS has noted that entities that operate in the US cannot circumvent reporting requirements by paying covered recipients indirectly through foreign entities that do not operate in the US Instead, the entity operating in the US must report these payments. For example, a US manufacturer may give funds to a commonly owned Canadian company (that is not an 'applicable manufacturer') to provide dinners to US physicians practicing in Canada. In the example, even though the US entity – not the Canadian entity – would have the legal obligation to track and report this information, it is likely that the US entity will depend on the Canadian entity to track any reportable information. For further discussion on indirect payments, see their briefing here."